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Modelling Implied Volatility of American-Asian Options: A Simple Multivariate Regression Approach
Mälardalen University, School of Education, Culture and Communication.
2015 (English)Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

This report focus upon implied volatility for American styled Asian options, and a least squares approximation method as a way of estimating its magnitude. Asian option prices are calculated/approximated based on Quasi-Monte Carlo simulations and least squares regression, where a known volatility is being used as input. A regression tree then empirically builds a database of regression vectors for the implied volatility based on the simulated output of option prices. The mean squared errors between imputed and estimated volatilities are then compared using a five-folded cross-validation test as well as the non-parametric Kruskal-Wallis hypothesis test of equal distributions. The study results in a proposed semi-parametric model for estimating implied volatilities from options. The user must however be aware of that this model may suffer from bias in estimation, and should thereby be used with caution.

Place, publisher, year, edition, pages
2015. , 36 p.
Keyword [en]
Implied Volatility, American-Asian Options, Quasi-Monte Carlo, Simulations, Weak Law of Large Numbers, K-Fold Cross Validation Test, Non-Parametic Kruskal-Wallis Test, Least Squares Approximation, Regression Tree, Pricing American Options
National Category
Probability Theory and Statistics Algebra and Logic
Identifiers
URN: urn:nbn:se:mdh:diva-28951OAI: oai:DiVA.org:mdh-28951DiVA: diva2:855196
Subject / course
Mathematics/Applied Mathematics
Presentation
2015-06-05, 10:45 (English)
Supervisors
Examiners
Available from: 2015-10-13 Created: 2015-09-19 Last updated: 2015-10-13Bibliographically approved

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Modelling Implied Volatility of American-Asian Options(1117 kB)171 downloads
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Probability Theory and StatisticsAlgebra and Logic

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CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf